Grafton reports 31% fall in sales

GRAFTON Group, the largest builders merchants in Ireland, saw a 31% fall in first-half sales to €990 million reflecting the deepening recession in construction.

Ireland was loss-making in the six months to the end of June while its British division made a profit, the group said yesterday. “The group has now entered the seasonally stronger trading period of the second half of the year, during which it expects to return to modest levels of profitable trading across the group,” it said.

In 2007, its turnover peaked at €3.2 billion against a projected revenue of just over €2bn in 2009.

The group’s main activities are builders merchants, DIY retailing, building materials and manufacturing.

Analysts said Grafton is facing the most challenging trading conditions for decades with a significant impact on profits.

Since April, sales have stabilised across the group which trades under the Chadwick’s and Heiton Buckley brands in Ireland.

The group is market leader in DIY retailing in Ireland with 22 Woodies stores and 16 Atlantic Homecare stores.

Costs have been cut aggressively with the fall in overheads in 2009 expected to exceed €70m against the €55m previously indicated.

No acquisitions have been made this year while capital spending is depressed as the recession bites.

Grafton’s well-geared balance sheet is benefiting the group in the current markets and has been boosted by the cash effect of a property disposal and currency movements, Citigroup said.

Improving mortgage approvals and low interest rates support continued improvement in Britain, it said.

A seasonally stronger second half should see Grafton return to profitability across the group supported by cost cutting. While markets have stabilised it remains too early to call a recovery.

“While we can see potential for longer-term investors with anything other than an extremely pessimistic view on Ireland and the UK, the lack of visibility on the macro outlook in these two markets is likely to create head winds for the stock, which we expect to continue to struggle as news flow remains poor,” Citigroup said. “We think the group is well managed, has a clear growth strategy and operates in an attractive industry.”

The analysts rate Grafton a “hold/high risk” investment at this point.